Inflation targeting as a monetary policy framework aimed at low inflation was introduced for the first time in 1990 by New Zealand. South Africa adopted this policy framework in 2000. Inflation targeting was preceded in South Africa by direct monetary policy instruments in the 1960s and 1970s, by money supply growth targets in the 1980s and early 1990s and by an eclectic monetary policy between 1996 and 2000.
Inflation targeting is a forward-looking policy, in other words, interest rates are not determined by the current inflation rate, but by the expected rate 12 or 18 months ahead. Owing to the forward-looking nature of an inflation-targeting regime, central banks in inflation-targeting countries have generally adopted three important support instruments for their policy frameworks: inflation forecasting, explanation clauses and the measurement of inflationary expectations (inflation opinion surveys).
As the setting of an inflation target is part of a policy approach aimed at reducing and containing inflation through a credible and publicly announced programme, it is important that the general public should accept published inflation figures as a true reflection of price changes in an economy in order to adjust their inflation expectations. For this purpose an inflation credibility barometer should be developed to support the measurement of inflation expectations by including questions about the credibility of the inflation rate in surveys used for sampling the inflation expectations in an economy.